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Speculation from a NYC venture capitalist

A Reflection on Boomi

This was a long overdue post, but it’s been a busy year. Fitting this comes as we head into Thanksgiving. Our investment in Boomi came at an interesting time. There were plenty of scars from the legacy integration 1.0 and EAI worlds. Those companies were marked by significant services implementation relative to license sales to deal with unique customer environments. That made integrations complex, costly and brittle. Companies like Grand Central, Bowstreet, and others had all tried to ride the Web services, SOA, and interconnected enterprise wave in the early 2000s. Most were way ahead of their time, leaving lots of dead companies on the road of venture capital.

We believed Boomi’s timing was different. The emergence of cloud compute services and the growing maturation of SaaS was a stark change from the past. Both were important backdrops to answer the question “what had changed”. We’ve had a thesis on how the cloud would require the re-writing of various middleware services. While the team had a long history in EAI, they decided to bet the farm on the cloud in 2007 and wrote an innovative forward looking platform from the ground up. They launched in early 2008, and we invested in the summer 2008 on the backs of healthy customer activity. The business wound up growing very rapidly 300%+ CAGR, continued to launch new innovation upon innovation, won major awards, struck some good strategic partnerships, and eventually got purchased by Dell in an outstanding result for us as investors and for the employees. From the outside, it was how you’d script it. But there were definitely things we learned along the way. Below are a few of them:

• SOA and Web services (WS) are foundational, not competitive with integration. Many had a view that as a result of the maturation of Web services, integration was built in and no longer needed. In fact, turns out WS were foundational to doing integration in a flexible, repeatable manner. It allowed us to connect more easily to systems, but you still needed a platform to orchestrate, move, transmute, and connect these WS ports. We believe we are finally, after a decade, scratching the surface on how SOA will empower and impact applications going forward.

• It takes time to find your sweet spot in the pyramid. Boomi launched with incredibly disruptive pricing, which led to a lot of customers quickly adopting. Early on, it turns out many were very small businesses only looking to connect two low end applications, where the value of the platform was less obvious and there were simple alternatives in the “point to point” world. The value of an integration platform grows non-linearly with the number of points connected. We pivoted to focus on companies with slightly greater needs, where our platform value would be clear and our innovation led to high stickiness. It takes time to tease out who the *right* customers are for a new category product. Once we understood that, it helped clarify decisions around product roadmap, hiring, sales model, etc.

• Don’t be afraid to raise prices. Related to above, low price, high quantity led to a lot of early customers, but it didn’t scale exactly the way we wanted or attract the best fit customers for our product. But it led to a lot of buzz. As we realized our best customers were a little further up the pyramid, we worried that increasing pricing would also mean losing the very small business segment and perhaps impact buzz. We spent a lot of time thinking about the tradeoffs, but decided it was more important to align with our target customer. We increased prices three times and the business didn’t skip a beat (in fact inflected upwards). If you find your spot on the pyramid, align all parts of the business to it.

• SaaS delivery model changed everything. Unlike the legacy world, which was plagued by high services and one off implementations, true SaaS allowed us new functionality and velocity the market hadn’t seen before. We could do exciting things like using multi-tenancy to figure out what most people do when connecting applications, and auto recommend process maps. This eliminated 90% of the manual work in integration. Our platform could be opened up, allowing people to build connections and make them available to the entire community. We could get reasonably complex integrations done quickly and reliably.

• SIs say they love SaaS but it’s hard to break economic incentives. We worked with a number of larger SIs who individually loved what Boomi was doing, but collectively found it difficult to leverage the product. It broke the model of “billable hours”. “Easier to configure” made for efficiency, but not more revenue. Some newer more progressive SIs, like WDCi out of Austrailia were great, but bigger shops found it hard to change.

• Indirect channels are hard to predictably scale early on. In addition to SIs, we also worked with dozens of ISVs who were go to market partners for the Company. We began to see success but that came after years of effort. Mark Suster has a great perspective that fits our case pretty well. No one could care about our success as much as us, nor did it matter that much for others versus us.

• Conviction is important. When we first invested in Boomi, we planned to split the round with a co-investor and introduced the Company to a few shops. Most folks could not get there, so we decided to write the entire check. After the market collapse in 2008, we told the guys to just focus on the business and be smart with cash, which they did a great job of. There was constant inbound poking given the profile, but mostly off and on distracting conversations. We decided to write an additional check so the team could focus entirely on the business. And it was ever so rewarded!

Looking forward, we’re always sad to see a market defining company go. The team did an outstanding job and I’d work with them in a heartbeat. We are glad to have been a part of it. We think there continues to be a huge opportunity in cloud infrastructure software. The strategic interest in Boomi underscored that. Dell has a fantastic opportunity to own one of the cornerstone building blocks for public or private cloud offerings, and exploit that as a real differentiator versus others out there. Meanwhile, we’ll go back and look for the next great company to back!

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6 thoughts on “A Reflection on Boomi”

Amish – great post, it’s nice to get a look under the hood at an interesting company.

Re: indirect channels, I would be curious to know in what cases you’ve personally seen them work in early stage enterprise software business.

From what I’ve seen & lived, trying to build channels+partnerships seems to always be a major time sink for early stage companies. Just takes away from the time the team could be focusing on the product and end customers.

Are there any good counterexamples of early stage software co’s having channel success?

John, agree… Not a lot of great examples out there. The reality is that you HAVE to invest and create their success, and when you do that successfully, you often indirectly give them the insight that they need to own the product. Patience and expectation dampening are critical.

Great recap of the Boomi story. We were delighted that we got the chance to participate in helping the company in a small way to get through the process. Great outcome for all and congrats on the win for FirstMark.